how farmers are dealing with volatility max roberts chairman
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How farmers are dealing with volatility
Max Roberts
Chairman
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Volatility in the dairy industry• Volatility is nothing new for our industry
• High input industry that is highly exposed to trade• 45% of production exported, significant imports
• Farm gate prices are driven by international markets• International market accounts for just 7% of world milk
production• Dairy trade is highly distorted by Nth Hemisphere policies
• On farm, bought in feed accounts for 30% of cash costs• Subject to grain and hay market volatility
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International dairy commodity prices
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
US
$/t
SMP WMP Butter Cheese
Source: Dairy Australia
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Income volatility –
Source: ABARE
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Income volatility – not just milk price
Source: DA and ABARE
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Volatility and uncertainty is increasing
FarmFinancial People
Physical
External environment
Grain
Water
FuelFertilizer
InputsExchange
rates
Economic
conditions
Govt
policies
Community
attitudes
New
technologies
Weather
Interest rates
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How are farmers dealing with volatility• Dairy is a highly adaptable production system
• Water vs grain & supplements• Strategic use of inputs – water, fertiliser• Diversified feed sources – new supplements & crops
• An integrated supply chain• Longer term strategic relationships – forward contracts• Options for selling milk - contract vs supply agreement• Relationship with dairy companies
• Prioritising business resilience• Whole of farm planning and scenario testing• Production not the key objective• A longer term view of profitability and wealth creation
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Increasing use of FMDs
At 30 September 2009 3,707 dairy farmers held Farm Management Deposits totalling $214 million
Source: DAFF
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Typical Australian dairy production system ?
• A continuum of systems operating across Australia• Many farms feature elements of all these systems - more
flexible and opportunistic
Rain-fed pasture Irrigated pasture Supplementary grain & concentrate feeding
Feedlot
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A range of feeding systems
Source: National Dairy Farmer Survey 2009
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• Highly adaptable production systems• An integrated supply chain• Prioritising business resilience
How are farmers dealing with volatility
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How is the industry responding?• Good risk management requires an understanding of the
external environment• Dairy Moving Forward – Taking Stock• Dealing with Today, Planning for Tomorrow (DAFF)• DairyLIVE• Situation & Outlook• Grain & Hay report
• Building capability• NCDEA• People in Dairy
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Dairy Moving Forward – Taking Stock• 3000 Taking Stock
sessions since 2004• Service providers trained• Collaboration with
•DAFF•DPIV•dairy companies•service providers
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DairyLIVE• Linking the industry through
technology•Cost effective•Access to international expertise
• Funding from DAFF• Optimising networking and
information reach
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Situation and Outlook• Whole of supply chain
analysis•Shared understanding of operating environment•Communicated via reports and presentations
• Wide target audience•Farmers•Service providers•Government
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Farmers dealing with volatility• The industry is developing the tools and information to
help farmers:• Understand the context• Understand the total farm position• Test against potential scenarios to find the fault lines
• Farmers are highly professional business owners• Employ 5 to 6 employees• Generate enormous economic benefits
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The way forward• Opportunity is out there
• The industry has proved it’s ability to compete and adapt• Well positioned to benefit from future demand growth
• Farmers will continue to adapt to volatility• Farms must run as a business• Require clear signals and information• Continue to build capability
• Policy settings will play an important role• Certainty of access to resources• Regulation